Lodging taxes need legislative clarification in online age

View full sizeThe emergence of online travel sites has led to confusion over how some lodging taxes are collected and distributed. House Bill 2656 seeks to provide clarification.

Efforts to reach agreement on whether and how to tax online transactions have fallen into a common Washington, D.C., trap. Quite a few people agree there should be a way to improve the current system, a complicated patchwork that relies on local laws and applies only in states where online companies have a physical presence. But very few agree on how to fix the system. Congress is talking about Internet taxes again, but the topic still could wilt as the temperature rises in the House. A narrower online tax conversation in Salem should bear fruit, however. House Bill 2656 would clarify the rules for the collection of online lodging taxes. In this case, consumers already are paying the taxes. The question in debate is who should get the money.

Various municipalities assess transient lodging taxes. For example, Portland's tax is 6 percent and Multnomah County's 5.5 percent, for a combined tax rate of 11.5 percent. A visitor in a $100-a-night room within the city pays $11.50. If the visitor books the room directly with the hotel -- whether by phone, online or in person -- the hotel sends that $11.50 to Portland, which sends the county its share.

But if the visitor books through a third-party online travel company -- Priceline and Expedia are two examples -- the formula changes.

In testimony before the House Revenue Committee, Bill Perry of the Oregon Restaurant & Lodging Association provided receipts showing that an unidentified online company kept $2.20 of taxes collected on a $139 room. That amount was equal to 15 percent of the taxes collected, the same as the company's commission.

In other cases, particularly in the past, online companies would buy rooms in bulk at a discount, then resell them. The companies would apply the tax to the bulk rate that they paid. In either case, the result is the same: Not all of the taxes paid by consumers go to the local governments who assess the tax.

The city of Portland is among governments nationwide that have filed lawsuits challenging the online travel companies' practices. The online companies argue that the spread between the wholesale and retail price, or the commission, should be considered a fee for their "facilitation services" rather than "rent." Portland's lawsuit is still in discovery, and similar cases have produced mixed results.

The proposed legislation would not affect Portland's lawsuit. It would, however, provide much-needed clarity going forward. "The tax is being collected from consumers but not going to the intended purposes," Perry told The Oregonian editorial board. We agree. Whether they like paying taxes or not, consumers assume that the price of rooms goes to businesses and taxes go to local governments.